Trump Could Target Venezuela’s Oil Industry After Sunday Vote

For months, the U.S. has signaled that it isn’t ruling out additional sanctions on Venezuela’s oil industry alongside the strict financial sanctions already in place, and oil analysts say that the United States could target Venezuela’s oil industry after the May 20 presidential election that Nicolas Maduro has called and that is seen as a sham by many countries in the Americas.

“Maduro will win as the election is rigged and it won’t be fair. The more important question is how the U.S. will react after the official results,” Tamas Varga, analyst at PVM Oil Associates, told CNBC in a phone interview.

“If U.S. refineries are forbidden from buying Venezuelan crude then you’d have to imagine the country is in trouble,” Varga noted.

The U.S. has so far refrained from slapping sanctions on Venezuelan oil because U.S. refineries along the Gulf Coast import oil from the crisis-stricken country. Another option that has been mulled, and not set aside either, is to ban U.S. oil exports to Venezuela, which uses the lighter grades to dilute its own heavy oil grades to make it exportable.

“Knowing Donald Trump, it is more likely than simply just a prospect because he likes playing hardball, he isn’t fainthearted and he is not afraid to punish countries.”

Earlier this week, the so-called Lima Group of mostly South American countries called on Venezuela to suspend the May 20 presidential election, describing it as “illegitimate and lacking in credibility.”

U.S. Secretary of State Mike Pompeo took part in the Lima Group meeting via videoconference and “urged his counterparts to hold the Maduro regime and its corrupt leaders accountable for their unconstitutional interruption of Venezuela’s democratic order by cutting off their access to our financial systems and barring them from our nations. Participants agreed on the need for a strong regional response to Venezuela’s undemocratic actions.”

If the U.S. were to slap sanctions on Venezuela’s oil industry, it could accelerate its already swift decline. In April, Venezuela lost 41,700 bpd of oil production and its output averaged 1.436 million bpd, according to OPEC’s secondary sources. This compares to average oil production of 2.154 million bpd for 2016 and to 1.911 million bpd for 2017, and was the lowest production level since 1949.

The International Energy Agency (IEA) said in its closely watched Oil Market Report today that the pace of Venezuelan decline was accelerating and by the end of 2018, production “could have fallen by several hundred thousand barrels a day.”

“Our April data show that Venezuela’s production is 550 kb/d lower than its target under the Vienna Agreement and this ‘excess’ is more than Saudi Arabia’s total commitment,” the IEA said.

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